The Sovereign Debt Crisis and the Problem of Political Culture In Europe

The New York Times has a front page piece that discusses the debt crises facing Greece and Italy and discusses them in the context of "unresponsive political cultures." While both countries have serious problems with tax evasion and political corruption, this is not the political culture that most immediately threatens the financial stability of the euro zone and the world.

The most obvious threat stems from the political culture in Germany, which is driving the policy coming out of the European Central Bank (ECB). While it has long been obvious to observers across the political spectrum that the solution to the debt problem involves restructuring of the debt of most heavily indebted countries, guarantees of the sovereign debt of the other heavily indebted countries, and a strongly stimulative monetary and fiscal policy to allow countries to grow as they make reforms, Germany's political culture is preventing the ECB from adopting a reasonable policy toward the situation.

Instead, it has been fixated on trying to punish the debtor countries. This has made matters worse, as austerity measures slow growth both within the heavily indebted countries and across the continent. Slower growth leads to larger deficits, causing these countries to consistently miss their deficit targets.

The German political culture also seems to include a bizarre paranoia about inflation. This paralyzing fear can be incredibly damaging in the current situation. If the NYT wants to explain how political culture is worsening the crisis in the euro zone it has focused on the wrong countries.